Indonesia central bank announces rate hike

JAKARTA: Indonesia’s central bank on Thursday hiked interest rates for the third time in four weeks as the country looks to bolster its currency, which has taken a battering from surging energy costs caused by the Middle East war.

It has been Asia’s worst-performing currency, according to financial outlet Bloomberg News, shedding around 7%.

Bank Indonesia lifted its key interest rate by 25 basis points to 5.75%.

The move came after it announced a surprise 50-basis-point hike on May 20 — the first in two years — and another of 25 points on Tuesday last week.

“This increase is a follow-up step to further strengthen the stability of the rupiah’s exchange rate amid persistently high global uncertainty,” Perry Warjiyo, the central bank governor, told a news conference.

The rupiah tanked earlier this month to a record 18,209 per dollar before bouncing back after last week’s rate increase. It is now sitting around 17,800.

Indonesia is a net oil importer, but the government has insisted on leaving heavily subsidised fuel prices unchanged despite struggling with high costs. Consumer prices rose 3.08% on-year in May.

The rupiah’s plunge since the turn of the year has come as the Indonesian stock market has lost about a third of its value as the economy struggles.

The economic strain has triggered student protests across the country, demanding the government stop excessive spending, including the billion-dollar free-meals scheme.

They also hit out at the government’s policy to raise the non-subsidised fuel by a third.

The Philippine central bank also raised rates by 25 basis points to 4.75% — as expected — on Thursday amid soaring inflation caused by the spike in fuel costs.

Consumer prices in the import-dependent archipelago surged 6.8% last month, slower than the previous month but well ahead of full-year targets. The bank said Thursday that the elevated cost of oil and fertiliser continued to drive high food and fuel prices.

“Inflationary pressures remain strong,” it said in a statement.

“Today’s policy action will help keep inflation expectations anchored and mitigate the risk of second-round effects,” it added.

Consultancy Capital Economics predicted a similar hike at the bank’s next meeting in August, adding it believed headline inflation would drop if the recently brokered US-Iran deal holds.